1. PCS Breakpoint Checklist provides an outline of the questions that should be asked to gather the information necessary to deliver breakpoints.

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1 Prime Capital Services, Inc Memo To: Registered Representatives From: Compliance Department Date: 02/04/2004 Re: Mutual Fund A Shares Breakpoint Delivery As a follow up to the current NASD review of how member firms deliver Class A share breakpoint discounts, the Joint NASD/Industry Task Force has recommended that broker/dealers advise registered representatives to complete standardized checklists or worksheets, which record the relevant account data, when executing Class A shares transactions. In order to assist our registered representatives and registered principals in determining proper breakpoint discounts on sales of Class A share front-end load mutual funds; the following information is provided for use with your clients: 1. PCS Breakpoint Checklist provides an outline of the questions that should be asked to gather the information necessary to deliver breakpoints. 2. PCS Breakpoint Worksheet designed to record the pertinent information. 3. PCS Instructions for entering mutual fund trades with breakpoints via Streetscape and the PCS Trading Desk. The Compliance Department believes that the use of these documents will aid registered representatives and registered principals in gathering and documenting the information necessary to deliver breakpoint discounts on eligible transactions. Registered Representatives and Registered Principals are reminded that PCS Explanation of Investment for Mutual Funds/Unit Investment Trust is a required disclosure form to be used with the purchase of all mutual funds within a brokerage account or for a non-brokerage account. Please be advised that there is a new edition dated 1/6/04 located on forms for download. Please be reminded that different fund families have different breakpoint requirements; please check the prospectus for all funds recommended. 1

2 Breakpoint Checklist 1. Does the customer already hold shares of any funds within the same fund family in his account? a. Record the current value of the shares of the fund already held by the customer in his account, or the historical cost of those shares, depending upon the rules of the fund family. 2. Does the customer hold shares of any funds within the same fund family in any other accounts outside the firm? a. Identify all accounts in which the customer holds shares of any fund within the same fund family, whether these accounts are held: i. At other broker/dealers, or ii. In other types of accounts, such as 401(k) plans, 529 plans, or variable annuity sub-accounts. b. Record the BIN/TIN for each account in which the customer holds any funds within the same fund family. c. Record the current value or historical cost, depending upon the fund family s rules, of the shares held by the customer in each account d. Record if the customer declines to provide such information or indicates that he or she has no other holdings. 3. Do related parties of the customer hold shares of any funds within the same fund family in accounts at this broker/dealer, other broker dealers, or in other platforms, such as 401(k) plans or 529 plans? a. Identify all related parties who hold shares of any fund within the same fund family and identify all accounts in which the customer holds shares of any fund within the same fund family, whether these accounts are held: i. At other broker/dealers, or ii. In other types of accounts, such as 401(k) plans, 529 plans, or variable annuity sub-accounts. b. Record the name of each party and their relationship to the customer. 11 Raymond Avenue Poughkeepsie, New York Tel. (845) Facsimile (845)

3 c. If the mutual fund allows a right of accumulation for the identified related parties: i. Record the BIN/TIN for each account in which a related party holds any funds within the same fund family; and ii. Record the current value of the shares held by related parties in each account or historical cost, depending upon the fund family s rules. d. Record if the customer declines to provide such information or indicates that no related parties hold shares of funds within the same fund family. 4. How much is the current purchase? 5. What are the customer s total holdings that may be counted toward determining breakpoint eligibility? a. Add the total holdings identified in responses to questions 1-4 (i.e.: all holdings in the customer s accounts and the accounts of related parties), using either current market value or historical cost, depending upon the fund family s rules. 6. Determine whether the customer is entitled to a breakpoint based upon his total holdings and the holdings of all related parties. a. If applicable, record the breakpoint discount that is available to the customer. 7. Does the customer have a letter of intent on file that would entitle the customer to a further discount? a. If yes, apply the appropriate discount, which is either the discount available pursuant to the letter of intent or the discount available based upon total holdings, whichever is greater. b. If the letter of intent can be applied retroactively, review other recent purchases to ensure that the appropriate discount was applied. c. If the customer does not have a letter of intent, review whether his or her investment patterns make a letter of intent appropriate. Use of this checklist does not constitute a safe harbor with respect to a member firm s continuing obligation to comply with applicable rules and regulations. 11 Raymond Avenue Poughkeepsie, New York Tel. (845) Facsimile (845)

4 Breakpoint Worksheet Account Name: Today's Date: SSN/TIN/BIN: Broker's Name: 1. Total holdings of customer at firm TIN/BIN on Accounts Holdings in Account Total 2. Total holdings of customer outside firm Customer declined to provide: Customer provided (record below): TIN/BIN on Accounts Account Type Holdings in Account 3. Total holdings of related parties Customer declined to provide: Customer provided (record below): TIN/BIN on Accounts Name/Relationship Holdings in Account 4. Today's purchase amount 5. Total holdings 6. Does the total qualify for a breakpoint discount? a. What breakpoint discount applies? % 7. Is there a letter of intent on file that would entitle the customer to a further breakpoint? a. If customer has letter of intent, is it retroactive? i. If yes, record the current value or historical cost of eligible prior purchases. ii. What breakpoint discount is available based upon letter of intent? % 8. If there is not a letter of intent on file, should customer sign one? 9. Record the highest breakpoint discount available to the customer. % Use of this worksheet does not constitute a safe harbor with respect to a member firm s continuing obligation to comply with applicable rules and regulations. Since changes to this Excel spreadsheet may result in changes to the calculations herein, member firms are cautioned to ensure that calculations are accurate before applying breakpoint discounts. 11 Raymond Avenue, Poughkeepsie, New York 12603

5 Mutual Fund Breakpoint Information for Trading Purposes Entering Mutual Fund Trades with Breakpoints ROA/LOI AMT Field 1. Registered representatives must ask their clients if they or their family (reference the prospectus for available linking) hold any mutual fund shares in any other accounts, either with Prime or elsewhere, for breakpoint purposes. If your client is entitled to a breakpoint, this field must be completed for all ROA (Rights of Accumulation)/LOI actions. Enter up to 12 characters, indicating dollar amount of breakpoint to which the trade is entitled for either the client s total account balance or for the LOI amount. Example: For a 100, breakpoint enter (no sign and no commas). Following are a few examples for clarification: Breakpoint Automatically Applied in the following Scenario ONLY a. If an account holds 90,000 (already settled) of a particular fund and the client is adding an additional 10,000 in the same account, the system will give the client the necessary breakpoint for that account only. The system will not check to see if the client has additional accounts or related accounts, at this time. Manual Application Needed for all other Scenarios (here are 2 examples) b. If an account holds 90,000 of a particular fund in their IRA account and is purchasing an additional 10,000 for their individual account, you must make sure the 100,000 breakpoint is entered, in order for the client to receive it. If you call the trade into Prime s trading desk, you must tell the trader the applicable breakpoint for that trade. c. If a client is investing 100,000 in four different funds of the same fund family, and there is a 100,000 breakpoint available, you must enter in the ROA field for each transaction, as the system does not know that you will be entering more transactions for that particular fund family. If you call the trade into Prime s trading desk, you must tell the trader the breakpoint applicable for that trade. 2. If the client has a LOI signed with a fund company, you must enter the breakpoint in the ROA field, which the client will attain, for that particular LOI. 3. Certain funds allow accounts to be link for ROA balance purposes. Consult the fund s prospectus to determine if linking is available. It is your responsibility to determine if the client will in fact be eligible for a breakpoint and inform the trader or enter the breakpoint into Streetscape. 4. If an LOI goes unfulfilled, the fund may contact NFS to notify of the default. In such cases, NFS will contact the account s branch office to notify of the necessary adjustments the fund will perform. However, NFS cannot control such practices and some fund companies may perform debit adjustments without notification. Page 1 of 1

Breakpoints Checklist and Worksheet Overview

Breakpoints Checklist and Worksheet Overview November 2003 To assist the financial industry in fulfilling its obligation to provide all available breakpoint discounts on sales of Class A shares of front-end